Selective Licensing of Houses (Additional Conditions) (England) Order 2015

Lord Ahmad of Wimbledon Excerpts

Monday 23rd March 2015 Grand Committee

Moved by

[Lord Ahmad of Wimbledon]

That the Grand Committee do consider the Selective Licensing of Houses (Additional Conditions) (England) Order 2015.

Relevant documents: 26th Report from the Joint Committee on Statutory Instruments (Special attention drawn to the instrument), 30th Report from the Secondary Legislation Scrutiny Committee

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Lord Ahmad of Wimbledon) (Con)]

My Lords, I beg to move that the Committee should consider the Selective Licensing of Houses (Additional Conditions) (England) Order 2015. The purpose of this order is to extend the criteria for the selective licensing of privately rented housing.

The private rented sector is an important part of the housing market, providing flexibility and allowing people to move quickly. There are now 4.4 million households who rent in England. Selective licensing was introduced by the Housing Act 2004. It enables local authorities to designate all or part of their area as subject to selective licensing. The effect of doing so is that landlords of all privately rented accommodation in the designated area must obtain a licence from the local authority. Local authorities must consult persons likely to be affected by the designation, such as landlords, tenants and other residents, before introducing a licensing scheme. A licence typically costs between £100 and £200 per year per property and is normally valid for five years. A local authority can attach conditions to the licence, such as setting a limit on the number of people who can live in the property or conditions relating to the installation of safety devices.

At present, selective licensing can be introduced only on the grounds of low housing demand and/or anti-social behaviour. We published a discussion document last year which invited views on a range of issues, including selective licensing. Many of the respondents, particularly local authorities, made it clear that further criteria needed to be added to enable local authorities to target action where it is most needed, help drive up the quality of privately rented accommodation and ensure that landlords take responsibility for the actions of their tenants. The Government agree that the current criteria for selective licensing are not wide enough and do not give local authorities enough discretion to take account of local circumstances. Subject to parliamentary approval, this order will extend the criteria for selective licensing to cover areas where there are a high number of properties in the private rented sector and the area is experiencing poor property conditions, large amounts of inward migration, a high level of deprivation or high levels of crime. In addition, the local authority must be able to show that making a designation will, when combined with other measures taken in the area, lead to an improvement in conditions or a reduction in the problem that the designation was designed to tackle.

The Housing Act 2004 provides that before introducing a selective licensing scheme a local authority must seek approval to do so from the Secretary of State. However, in March 2010 the department issued a general approval which provides that, subject to the local authority ensuring that it has complied with the statutory requirements around designation and consultation, it does not have to seek approval from the Secretary of State before introducing a selective licensing scheme and can rely on the general approval instead.

The Government believe that licensing can play an important role, particularly when it is strictly focused on discrete areas with specific problems. However, the blanket licensing approach which has been adopted by some local authorities since the general approval was issued can have major drawbacks because it impacts on all landlords. Newham Council and Barking and Dagenham Council have already introduced blanket licensing schemes which cover their entire local authority areas. Three other local authorities—Croydon, Liverpool and Waltham Forest—are also planning to do so shortly.

There is a real risk that, left unchecked, blanket licensing could proliferate, putting additional burdens on reputable landlords who are already fully compliant with their obligations. The vast majority of landlords provide a good service, and the Government do not believe it is right to impose unnecessary additional costs on them or their tenants. Such an approach, without proper justification, is disproportionate and can unfairly penalise good landlords.

The impact is reduced investment by landlords in additional rented housing and unnecessary costs which tend to be passed on to tenants through higher rents. Our specially appointed private rented sector task force has estimated that the impact of widespread licensing in London would be an £8 million reduction in investment value on the 5,000 new build-to-rent homes that the mayor wants built each year.

To address this issue, it has been decided to amend the general approval at the same time as the criteria are extended. With effect from 1 April, and subject to the criteria being extended, local authorities will have to seek confirmation from the Secretary of State for any selective licensing scheme which would cover more than 20% of their geographical area or would affect more than 20% of privately rented homes in the local authority area. All applications will be considered on a case-by-case basis. This approach will help ensure that local authorities focus their activity on areas with the worst problems while helping to ensure that they do not adversely impact on good landlords.

In its report to both Houses, the Joint Committee on Statutory Instruments made two comments which I would like to address. The first was that the draft order contained errors in the preamble, specifically that it mistakenly cited subsections (1) and (6) of Section 250 of the Housing Act 2004 as enabling powers and did not refer to a draft of the order having been laid before and approved by resolution of each House of Parliament. These drafting errors, which do not in any way affect the substance of the statutory instrument, will be corrected in the final version.

The second comment was that the proposed additional criteria were too broad and open-ended and could result in significant areas of the country being designated as subject to selective licensing. The committee therefore reported the draft order on the ground that it appears to make an unexpected use of the power in Section 80(7) of the Housing Act 2004. I would like to make the following points in response. First, local authority powers will not be open-ended. If this order is approved, we will publish guidance for local authorities which will set out how they should interpret the new criteria and the evidence base that they would need to develop to support any decision to designate an area. Secondly, widening the criteria will help local authorities target enforcement action in areas where it is most needed. This should help ensure that, overall, fewer properties are designated and that any schemes do not impact on good landlords or their tenants. Thirdly, local authorities will need to obtain confirmation from the Secretary of State of any selective licensing designation that would cover more than 20% of the authority’s geographic area or more than 20% of its privately rented stock. This requirement should help ensure that schemes are kept tightly focused and are only introduced where absolutely necessary.

I recognise that extending the criteria in this way, together with the introduction of a requirement for local authorities to obtain confirmation from the Secretary of State before introducing schemes above a certain threshold, are potentially major changes. Therefore, the Government have decided that they will undertake a review of the impact of these changes 18 months after their introduction. I am sure that that is well appreciated by the noble Lord, Lord Beecham.

The current criteria for selective licensing on the basis of low housing demand and/or anti-social behaviour are too restrictive. The Government have decided to address this by extending the criteria to cover poor property conditions, large amounts of inward migration, a high level of deprivation and high levels of crime, as I mentioned earlier. These changes will help ensure that local authorities have the right tools to target enforcement action where it is most needed. At the same time, we are amending the general approval so that in future the Secretary of State will need to confirm any licensing designation above a certain threshold. I commend this order to the Committee.

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[Lord Beecham (Lab)]

My Lords, while welcoming, in particular, the conditions set out in the draft order as being helpful to facilitate the successful operation of licensing schemes, I respectfully adopt the—critique is perhaps too strong a word—observations of the noble Lord, Lord Best, and my noble friend Lord McKenzie in relation to the matters to which they spoke.

I have had some experience of the selective licensing regime, as I campaigned strongly for one to be created in the ward that I represent. It has been pretty successful. When I tried to persuade the local authority to extend the scheme for another, discrete, part of the ward, at that time—I am going back four or five years—it was not feasible because the Government were concerned about the size. A size factor was required, although that is probably no longer the case.

I fear that the drafting of this order contains potential problems and I should like to address my remarks to those matters. For example, paragraph 3 requires that,

“the area contains a high proportion of properties in the private rented sector”.

What on earth does that mean? Have the Government produced any guidelines or guidance, preferably in conjunction with the Local Government Association—I declare an interest as an honorary vice-president of that organisation—about the proportions they are talking about?

One or two issues of that kind are contained in paragraph 4. For example, it refers to where,

“the local housing authority considers it would be appropriate for a significant number of the properties”.

What is a significant number? The local authorities could be in danger of challenge here unless there are, again, clear guidelines.

There is also the question of the character of, rather than the number of, properties. There could be a number of three or four-storey houses in an area alongside a number of semi-detached houses or whatever, and the number of properties might not tell the whole story of the number of people involved in the appropriate lettings. I am concerned about that aspect.

Paragraph 5 states:

“The second set of conditions are … that the area has recently experienced or is experiencing an influx of migration into it”.

I have two questions about that: what is meant by “recently” and what is meant by “migration”? Migration could take a number of forms. In common parlance it is people from overseas but in an area, to take an extreme example, an influx of people from Sunderland to Newcastle might be regarded as a somewhat questionable process of migration. I do not say that I share that view but there is a question about what is meant by migration in that context.

In paragraphs 6 and 7 there are references to “a high level”. In paragraph 6 the area must be,

“suffering from a high level of deprivation”,

and in paragraph 7(a),

“from high levels of crime”.

These are potentially justiciable issues and seem very vague. It would be helpful if the department—again, in conjunction with the LGA and possibly other consultees—were to consider guidelines in that respect.

There is a reference in paragraph 7(b) to criminal activity having an impact on other households and businesses in “the area”. Does that mean in the area of the licensing scheme or in the wider area? What happens in an area adjoining where there is a licensing scheme could well depend upon or be caused by the conditions in the licensing scheme area, although the impact might be outside. Would that be taken into account? It is not clear.

Finally, there is a significant issue which certainly affects Newcastle and many other places, and that is student accommodation. Large areas of my city and, I suspect, many others are now given over to student accommodation. That is often quite problematic. In fact, I would go so far as to say that it is very problematic in some areas. I am not sure whether, as an issue, that is implicitly incorporated within these conditions or whether it becomes a discrete factor in itself. My preference would be for the latter, but is the Minister able to say whether, to adopt the present order’s words, a high proportion of student residences in an area would be a factor that could justify a licensing scheme? If not, I encourage the Minister to take a look at that issue because it impinges quite significantly on what had hitherto been ordinary residential areas. I am talking not about purpose-built student accommodation but about the conversion of existing family accommodation into student accommodation. Sometimes they are HMOs and can be controlled in that sense, but very often they are not. It seems to be an increasing problem that is likely to increase further. If at all possible, it should be brought within the framework of the scheme.

Having said that, in general, I welcome the proposals. They should assist, but some of the issues that I and others have raised need to be addressed if we are going to make the best use of the possibility of deploying the scheme in the way that the Government wish.

[Lord Ahmad of Wimbledon]

My Lords, I thank all noble Lords who have taken part in this debate. They all speak from great experience of local government and I appreciate their constructive suggestions and questions. I shall seek to answer all of them, or at least most of them, as I work through my response.

The noble Lord, Lord Best, talked of the 20% reference point for the Secretary of State. I assure him that it is the Government’s view that this strikes a fair balance between ensuring that schemes are focused on areas where there is a problem and, as I said in my opening remarks, which he acknowledged, do not unfairly impact on good landlords and their tenants. I assure the noble Lord and the noble Lord, Lord McKenzie, who raised a similar point about whether this is centralising the proposition if approval is required, that all applications will be considered on a case-by-case basis. If a local authority produces evidence in support of its proposition, we would expect that application to be approved.

The noble Lord, Lord Best, said that only in exceptional circumstances could licensing be used in more than 20% of properties. As I have already said, it will be considered on a case-by-case basis. There may be cases where licensing of more than 20% of the borough would be considered appropriate. Such applications would be submitted to the Secretary of State. There is sometimes a sense that just because it is submitted to the Secretary of State the answer will be no but it would be looked at on a case-by-case basis on the evidence submitted.

The noble Lord, Lord Best, was concerned that landlords may be inclined to pass on costs to tenants. In areas of high demand, it is highly likely that rents will go up. We feel that, given the scarcity of accommodation, tenants will have no choice but to accept higher charges. There is a concern we are looking to address.

The noble Lord, Lord McKenzie, said there was concern about introducing licensing on a whim. As noble Lords are aware, councils must consult tenants, residents and landlords over a 10-week period before introducing any such licensing.

[Lord McKenzie of Luton]

My point was not to encourage councils to introduce licensing on a whim but to make the point that they cannot do so. They have to go through a process, which is why it should be left up to them.

[Lord Ahmad of Wimbledon]

I agree with the noble Lord. Perhaps I should rephrase what I said. I was not for a moment suggesting that he would ever do anything on a whim; he would do things only in a careful and considered fashion. I will not comment further: following the previous five SIs I think we are on to dangerous territory. The noble Lord makes a valid point and I think that we are on the same page here, although we are perhaps looking at the issue from different angles. My suggestion is that the check and balance approach that we have adopted does not mean that when councils make an application for more than 20% of the area it will be rejected, but consideration will of course be given to the application as submitted.

The noble Lord, Lord McKenzie, also referred to the problems that have arisen and asked whether we were seeking to highlight any specific ones. The noble Lord, Lord Best, talked about his experience in Newham. Of course, the Newham scheme was introduced only in January 2013 and the other scheme that I alluded to in Barking and Dagenham was introduced only in September 20014. In answer to the noble Lord, Lord McKenzie, it is too early to make an assessment based on robust evidence, and that is why the Government are strongly inclined to ensure that we review this policy in 18 months’ time. As we move forward in this respect, both the contributions that have been made in this debate and the concerns that have been raised will, I am sure, be considered as part of that review.

The noble Lord, Lord McKenzie, also raised the issue of guidance. I think that I made the point that we will shortly be publishing guidance for local authorities on the additional criteria, and perhaps some of the questions will be answered in that. More importantly, it will set out the information that local authorities will need to give if they want to apply to the Secretary of State to confirm a particular designation.

On the evidence base, of course various consultations were carried out. Various people also gave evidence to the CLG Select Committee and perhaps I may quote one. On deterring investment, Andrew Cunningham from Grainger said at the CLG Select Committee hearing in 2013 that,

“the introduction of licensing that Newham has done is for an organisation like ourselves a very heavy stick. There is no incentive for an organisation like Grainger to invest its relatively scarce resources into a borough like Newham. There is no incentive for a landlord like us to stay there”.

That has in part also been noteworthy for the Government but, again, I emphasise that we will be reviewing the implementation in 18 months’ time.

The noble Lord, Lord Beecham, raised a series of questions on definitions—for example, the definition of a high proportion of privately rented properties. It is estimated that nationally the private rented sector makes up about 19% of the total housing stock. Therefore, where an area contains a private rented sector higher than 19%, this may be taken broadly as an indication of a high proportion of properties in the private rented sector. However, we have been very careful not to specify a particular figure which would be considered to be too high a proportion for the private rented sector, because we recognise that there may be regional differences that influence what is considered to be a high proportion of properties in this sector. Therefore, our view is that it is really for local authorities to determine what should be defined as a high proportion.

The noble Lord, Lord Beecham, also asked about high levels of crime. Again, it is for local authorities to determine whether they consider their crime levels to be high in a particular area. However, he will know as well as I do that local authorities make assessments of low-and-high crime areas across each borough of a county, and they make determinations accordingly.

The noble Lord, Lord Beecham, also asked about migration, using the example of people from Sunderland going over to Newcastle. However, it could also be people from Newcastle going over to Sunderland. I do not know what that does for football supporters but I am sure that the rivalry will be sustained. Nevertheless, the term “migration” is also left undefined, so it would take on its ordinary meaning of referring to people moving into an area from neighbouring cities in different parts of the country, as the noble Lord himself suggested, or from overseas. It is worth saying that migration can have an important impact on the supply and demand of rented accommodation and may result in a shortage of available accommodation overall. A small number of rogue landlords are known to exploit such a scheme.

Although I fully accept that the noble Lord may have sought more precise definitions, the emphasis is that we seek to keep the definitions broad to allow local and, indeed, regional interpretation. We will provide further clarification in the guidance. The final sense that I would convey is one of understanding that these are new provisions and that it is important that we review the policy in practice. I am therefore pleased that the Government have committed to the 18-month review.

[Lord McKenzie of Luton]

Will the Minister deal with the point that I raised about the impact assessment reference to local authorities having to demonstrate that a scheme is enforceable and fully resourced? Can he say little more about what is likely to be involved in those judgments, particularly about whether a scheme is enforceable?

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[Lord Ahmad of Wimbledon]

I think it is as it says on the tin: can the scheme be practically applied? Each case that is presented will be among the evidence base supplied. My immediate response is: ultimately, is the scheme practical; can it work, in essence? I hope that with that response, the noble Lord and other noble Lords are assured, with the commitment that I give again that the 18-month review will attempt to address some of the concerns that have been raised. I have just received a note which states that the enforceable and practical element will also cover whether, for example, fees will cover the cost of any scheme.

[Lord Beecham]

My Lords, this is my last question of the noble Lord today—and probably the last thing that I will say for the duration of this Parliament, as he will be relieved to hear. I return to my question about student accommodation and whether the Government will take a particular look at that as an issue in the context of the whole area of selective licensing.

[Lord Ahmad of Wimbledon]

The noble Lord makes a valid point. In his question he also talked about crime, deprivation and migration. Areas with high numbers of students alone would not be covered; it would involve taking those other elements into account as well. However, I will reflect on his comments to see whether I can add anything more specific. I will hold him to the statement that this is the last question that he will raise not only today but in this Parliament.

Motion agreed.